A quick Internet search revealed some alarming statistics. According to the Associated General Contractors of America (AGC), 81% of construction companies are having difficulty filling both hourly and salaried trades positions. A whopping 72% of these builders expect the labor shortage to continue to be the dominant challenge to our industry this year. Lumber prices have been falling since June. One Internet article likened it to a bubble that has finally popped. But that is cold comfort if you can't find skilled workers to turn all that suddenly affordable lumber into finished houses. With all that said, this blog is on an insurance company website that specializes in General Liability. So why talk about the short supply of workers or the cost of building materials? There are several reasons.
- As a general contractor, your general liability premium is based on the total cost of construction. At the beginning of each policy term we ask you to estimate your costs. At the end of that term we audit your records and "true up" your final premium. With labor scarce and material costs on a roller coaster, it can be a challenge to estimate your total costs. If you overshoot the mark, no worries, we'll return the unused premium after the term ends. But, if you guessed too low we'll have to send you a bill for a sizable audit premium. We call that "audit shock" and no one wants that to happen.
- Labor shortages can mean scrapping the bottom of the barrel for workers. You may feel squeezed to hire subs with less experience. This can lead to mistakes during construction that can turn into serious insurance claims later on. Construction defect claims often arise out of faulty installation.
- In a worst case, if the labor shortage lasts long enough you might not be able to finish a project. Partially completed structures can attract thieves and vandals who could rob, damage or destroy materials at the site. Your builders risk policy may have a "cessation of work" provision for projects that have been inactive for an extended period. Such a provision typically stops coverage after as little as 30 days, leaving you on your own for losses.
Labor shortages are a major headache and largely out of your control. It's easy to overlook the insurance consequences when you're scrambling to find enough tradespeople to finish your project. Being aware of the three major concerns just mentioned can aid in planning your future projects while the shortage lasts. Of course, we can't predict when the labor shortage will ease, but we didn't foresee the cost of lumber taking a nosedive in June either. Expect the best, but plan for the worst is an old saying that is sound advice these days.
If you have questions about your general liability or builders risk insurance needs, or if you'd like a quote, give us a call at 866-454-2155, or visit us on the web at https://rwcinsuranceadvantage.com//.